Independence in Fact vs. independence in Appearance

for an auditor to accept a client it's absolutely critical that the auditor have independence with respect to the client but what is independence even mean so there's actually two types of independence we have independence in fact and then we have independence in appearance and the auditor needs to have both of these okay just one is not enough independence in fact refers to the auditor state of mind if we could actually get inside the head of the auditor and see are they in fact unbiased for example let's say that I'm the auditor and I have been

engaged to audit Microsoft and I have a child that is a major shareholder they own a lot of shares in Microsoft okay now it's it's possible I'm not saying this but it's possible that I could have independent state of mind when I go to do the task for the audit and I'm actually issuing the audit opinion regarding Microsoft financial statements it's possible that I could be completely unbiased did not let the fact that my son is a major shareholder affect any of my decisions and I could just issue opinion and do a good job because

I have an independent state of mind I'm not saying that will always be the case I'm saying it's theoretically possible however even though I might have independence in fact even though I might have that owned by a state of mind and say I'm not gonna let this affect me that my child owns a lot of shares of Microsoft I'm gonna do an unbiased audit I would not have independence in appearance because someone would look you for example might look and say hey your son or your daughter or whoever is a major shareholder of Microsoft so

of course that must be affecting your judgment it must be affecting my independence as the auditor because I'm thinking about my child and what is gonna be the value of their shares so even though I might have independence of fact ok independent State of Mind where I'm completely unbiased it's also important that I maintain as you auditor independence and appearance so that no one gets the idea and says hey wait a minute clearly this auditor is not independent because independence is everything because otherwise we don't value the audit the audit is worthless and in fact

we could say that a company really hasn't even had it angel statements audited if the auditor lacks independence